19. Ratio analysis. Swift Community Hospital, a 310-bed facility, is a sole provider hospital in a rural New England area serving a large market. Recently, a wealthy philanthropist made a major contribution to the hospital's long-term investment fund. Assess Swift's profitability, liquidity, activity, and capital structure ratios. Using the financial ratios from Exhibit 4.25 for the current and previous years, evaluate Swift's financial condition, and also compare its ratios to national industry benchmarks for its bed size, using the data from Exhibits 4.16a. 198 CHAPTER 4 FINANCIAL STATEMENT ANALYSIS EXHIBIT 4.25 SELECTED FINANCIAL RATIOS FOR SWIFT COMMUNITY HOSPITAL 20xO Ratio 20X1 3.12 2.12 1.95 1.45 0.25 58 0.89 48 46 148 50 56 0.01 Liquidity ratios Current ratio Quick ratio Acid test ratio Days in accounts receivable Days cash on hand Average payment period (days) Profitability ratios Operating margin Nonoperating revenue Return on assets Activity ratios Total asset turnover ratio Fixed asset turnover ratio Age of plant Capital structure ratios Long-term debt to net assets Net assets to total assets Debt service coverage ratio 0.02 0.35 0.15 0.05 0.04 0.90 0.80 1.90 12.92 2.10 11.04 0.60 0.25 0.65 3.50 0.35 2.25 Key Equations EXHIBIT 4.16b FORMULAS FOR KEY FINANCIAL RATIOS Liquidity ratios Formula Current ratio Current Assets / Current Lisbdities Quick ratio CashMarketable Securities Net Receivables / Current Liabilities Acid test ratio Cash-Marketable Securities / Current Liabilities Days in accounts receivable Net Patient Accounts Receivables / Net Patient Revenues/365) Days cash on hand Cash Marketable Securities +Long-Term Investments / Operating Expenses - Depreciation and Amortization Expenses)/365 Average payment period, days Current Liabilities/ Operating Expenses - Depreciation and Amortization Expenses) /365) Revenue, expense, and profitability ratios Formula Operating revenues per adjusted discharge Total Operating Revenues Adjusted Discharges Operating expense per adjusted discharge Total Operating Expenses / Adjusted Discharges Salary and benefit expense as percentage Total Salary and Benefit Expense / Total Operating Expenses of operating expense Operating margin Operating Income / Total Operating Revenues Nonoperating revenue ratio Nonoperating Revenues and Other Income / Total Operating Revenues Return on total assets Excess of Revenues over Expenses/Total Assets Return on net assets Excess of Revenues over Expenses / Net Assets Activity ratios Formula Total asset turnover ratio Total Operating Revenues / Total Assets Net fixed assets turnover ratio Total Operating Revenues / Net Plant and Equipment Age of plant ratio Accumulated Depreciation / Depreciation Expense Formula Capital structure ratios Long-term debt to net assets ratio Net assets to total assets ratio Times interest earned ratio' Long-Term Debt/Net Assets Net Assets/Total Assets Excess of Revenues over Expenses + Interest Expense) / Interest Expense Excess of Revenues over Expenses + Interest Expense + Depreciation and Amortization Expenses / Interest Expense+Principal Payments) Debt service coverage ratio Adjusted Discharges Total Gross Patient Revenue / Total Gross Inpatient Revenues) Total Discharges. "in for-profit health care organization calculated as Net Income Total Assets Called turn on equity in for profit bealth care organizations and calculated as Net Income/Owners' Equity Called long-term debt to equity in for-profit health care organizations and calculated as Long-Term Debt/Owners' Equity "Galled equity to total assets info profit health care organizations and calculated as Owners Equity / Total Assets 'In for-profit health care organizations calculated as (Net Income Interest Expense) / Interest Expense in for proft health care organization calculated as Net Income Interest Expense Depreciation and Amortization Expenses/interest Expense + Principal Payments EXHIBIT 4.16a FINANCIAL RATIOS FOR ALL U.S. HOSPITALS BY BED SIZE Optum & CMS Median Ratio Hospital Industry 1-99 Beds 100-199 Beds 200-299 Beds 300-399 Beds 400+ Beds Desired Position 218 204 188 165 1.27 1.39 0.18 1.71 42 0.20 035 2.11 152 0.30 49 86 50 184 1.50 0.38 44 119 52 0.20 44 102 56 Above Above Above Below Above Below 45 81 51 B5 45 76 $7448 $7,197 409 $7,086 56.494 401 56,407 56,112 30% $6,766 56,260 384 57,121 56.619 389 $7,517 $7.199 38 Above Below Below 0.04 Ratio Liquidity ratios Current ratio Quick ratio Acid test ratio Days in accounts receivable Days cash on hand Average payment period, days Revenue, expense, and profitability ratios Operating revenue per adjusted discharge Operating expense per adjusted discharge Salary and benefit expense as a percentage of operating expense Operating margin Nonoperating revenue Return on total assets Return on net assets Activity ratios Total asset turnover ratio Net fixed assets turnover ratio Age of plant ratio Capital structure ratios Long-term debt to net assets ratio Net assets to total assets ratio Times interest earned ratio Debt service coverage ratio 0,03 004 0.04 0.08 0.02 0.05 0.04 0.08 0.03 0.03 0.04 008 0.05 0.04 0.09 0.04 0.07 0.05 0.10 0.04 0.17 005 0.09 Above Varies Above Above 1.07 2.12 10.31 1.19 2.17 10:41 1.03 2.03 10.12 0.99 2.11 11.97 1.03 2.04 10.93 1.06 2.21 11.19 Above Above Below 0.38 0.52 0.21 054 3.78 3.18 0.18 0.58 3.47 3.51 0.31 0.51 3.43 3.53 0:42 0.47 3.64 350 0.59 0.48 5.13 Below Above Above Abowe 636 All ratio values except for quick and test and salary and benefit expense as a percentage of operating expense ratios were obtained from Optum Insight 2018 Amanec o place and Operating indiston 2011/2010 med det. The quick, acid test and salary and benefit expert as a percentage of operating expertos were obtained from 2010 CMS est port dana These are the up to a certain point For sale in general the higher the better for the current ac, but a certain point, the con might be better off in some of the